Problem 5: (Noninterest-bearing note with installment payments; Annuity Due)

On January 1, 2018, AA Company sold goods to BB Company. BB Company signed a non-interest bearing
note requiring
payment of P600,000 annually for seven years. The first payment was made on January 1, 2018. The
prevailing rate of
interest for this type of note at date of issuance was 10%.

PV of an ordinary annuity of 1 at 10% for 6 periods 4.36

PV of an ordinary annuity of 1 at 10% for 7 periods 4.87

1. What amount should be recorded as sales revenue in January 2018?

2. What is the interest income for 2018?

3. What is the carrying amount of the note receivable on December 31, 2018?

Down payment 600,000